In the cloud computing industry, the companies that get mentioned the most are the so-called “big three”: Amazon Web Services (AWS), Microsoft Azure (Azure), and Google Cloud Platform (GCP).
Alibaba Cloud is usually ignored in the cloud chatter in mainstream U.S. business media, among Wall Street analysts, and in Silicon Valley media. During Alibaba’s most recent earning call, out of the eight questions analysts asked, only one referenced the cloud unit, and it was in the context of potential effects by the coronavirus (COVID-19). In a deep dive video discussion on GCP’s future by The Information, a premium tech media outlet, only one reporter mentioned Alibaba Cloud offhand in passing.
Is this omission merited, or is it a blindspot?
Earnings and Growth
Let’s look at the earnings and growth rate of Azure, GCP, and Alibaba Cloud to see how they stack up. (Since AWS is the runaway leader in the market at the moment, including it in this comparison seems less meaningful.)
Based on its most recent earning report announced on February 13, 2020, Alibaba Cloud’s previous four quarters of earnings generated a total of 5.1 billion USD in revenue. The year-on-year growth rate compared to the previous four quarters ranged between 62% to 76%.
For Alphabet, which released earnings on its cloud unit (called “Google Cloud” in financial statements) for the first time ever in its most recent report on February 3, 2020, the unit generated 8.9 billion USD. It did not release quarterly results for the previous four quarters, but the annual year-on-year growth rate was 53%. Alphabet does not release numbers on GCP alone, but only as part of the “Google Cloud” category, which also contains other products like GSuite (e.g. Gmail for businesses, domain name management, etc.).
For Microsoft, which calls its cloud unit “Commercial Cloud”, it generated 44.7 billion USD in cloud revenue as announced in its most recent earnings report on January 29, 2020. The year-on-year growth rate of Commercial Cloud for the previous four quarters ranged between 36% to 41%. The year-on-year growth rate of Azure for the previous four quarters ranged between 59% to 73%. Microsoft, like Alphabet, also does not release numbers on Azure alone (except for the growth rate), but only as part of the Commercial Cloud category, which includes a bunch of other products that are delivered via its cloud on a subscription basis, like Office 365 Suite, Teams, probably Skype (since it's part of the office productivity offering), and other services.
44.7 > 8.9 > 5.1. 2nd, 3rd, 4th place. Case settled, right?
Not All Clouds Are Created Equal
It’s evident that the way these tech companies report on their cloud businesses is wildly inconsistent and convoluted, which makes assessing how a cloud computing platform is doing relative to its peers difficult.
However, for an engineer or a developer, what makes a cloud is clear. In plain language: it’s a set of compute, storage, and networking resources, plus infrastructure-level technology services (like databases, container orchestration, big data tools, machine learning frameworks) that are always available to be rented out to build applications.
That means: Azure is a cloud, “Commercial Cloud” is not. GCP is a cloud, “Google Cloud” is not. And Alibaba Cloud is a cloud.
With this important distinction in mind, the battle for bronze (maybe even silver) in the “Cloud Computing Olympics” is no longer so clear cut. A decent chunk of Google Cloud’s 8.9 billion in revenue is probably earned by GSuite, so GCP’s revenue alone is probably closer to Alibaba Cloud’s than at first glance. It’s hard to tell how much of Microsoft’s Commercial Cloud revenue is Azure vs non-Azure, though it’s safe to assume that Azure’s revenue is far bigger than Alibaba Cloud’s revenue. That being said, the growth rate of Azure and Alibaba Cloud are both in the 60-70% range, which could mean two things:
1. Team Azure is wildly out-executing Team Alibaba and Team GCP, even with a larger base to calculate growth rate on (the larger the base, typically lower the growth rate over time); or
2. Azure is actually not that much bigger than either GCP or Alibaba Cloud, which may in fact be a reason why Microsoft does not release the unit’s revenue on its own, like AWS or Alibaba Cloud.
Not All Revenue is Created Equal
Based on a projection by IDC, an industry analyst firm, the global public cloud computing spending was $229 billion in 2019 and will grow to $500 billion in 2023. North America will account for more than half of that pie, Western Europe is second with close to 20%. China is pegged as potentially the fastest growing market, but starting from a small base.
What does this mean from a revenue quality standpoint?
Well, it’s clear that the North American market is the most mature, in the sense that enterprises large and small have a solid grasp of what is public cloud computing, its value proposition, and ways to purchase it at scale. Less energy and time need to be spent educating the market; it’s already educated. Thus, revenue coming from this type of customer is of higher quality because the sales cycle is shorter, the tendency to renew for the long term is higher (more predictable revenue growth), and the way customers use different cloud products is more consistent and as intended (less customization, more scale).
In a less mature market, most of these characteristics don’t exist. Therefore, the costs to acquire and keep customers, and then scale to multiple customers are all much higher.
It’s old news at this point that it’s hard, if not impossible, for any Chinese tech company to do meaningful business in the U.S. due to political tension, regulatory concerns regarding cybersecurity, and general paranoia about how products with a China link, however tenuous, can lead to security vulnerabilities and intellectual property theft. Alibaba Cloud’s own expansion plan into the U.S. was halted in 2018, after spending more than three years and millions of dollars in building two data centers (one in Northern California, one in Virginia) and a full service American team.
In effect, Alibaba Cloud has been shut out of the most mature and lucrative public cloud market with the highest quality revenue.
On one level, it suggests that Alibaba Cloud’s business is capped. Unless and until the business environment between the U.S. and China improves, it can only play in emerging markets that are less mature.
On another level, you can’t help but be a little impressed by its ability to execute and deliver more than 5 billion USD of run rate primarily from China and other parts of APAC, where the cloud journey is still in its infancy.
When we compare GCP and Alibaba Cloud, we can make a reasonable argument that Alibaba Cloud is executing better and deserves a “third place” nod, because it has grown to be about the same size as GCP, while operating in a much less friendly business environment.
Transparency Is Integrity
Part of the reason why assessing which cloud is bigger/smaller than which is hard is the lack of consistency and transparency in two of the biggest companies’ reporting. This post would’ve been pointless if Microsoft just shared stand-alone numbers on Azure and Alphabet did the same for GCP.
Alibaba (and Amazon) deserves some kudos for being straightforward with its reporting.
People usually do not give Chinese tech companies the benefit of the doubt when it comes to transparency and integrity. And those suspicions are generally warranted.
But we should always see things for what they are, not what we tend to believe, and give credit where credit is due. Alibaba Cloud deserves some credit for its transparency.
Opacity breeds suspicion. I’m not insinuating that Microsoft and Alphabet are being convoluted with their cloud reporting for nefarious reasons. But I do hope they will be cleaner in their future reports, and be more like Amazon and Alibaba.
在云计算行业里，被提及最多的公司是所谓的“三巨头”：亚马逊网络服务（Amazon Web Services, AWS）、微软Azure（Azure）、谷歌云平台（Google Cloud Platform，GCP）。
447 > 89 > 51。第二，第三，第四。没什么好说的了吧......？